As much as the subject of ‘Technical Indicators’ equipped with the latest marketing tactics has propelled them to continuously flood the markets, it would be as much to witness the number of traders that have been disappointed by it.
We have cherry picked the top 3 most popularly used and known indicators in the Forex markets today, as follows;
1. Moving Averages (MA)
Due to the fact that Moving Averages are still labelled as a ‘Lagging’ indicator which draws the trend from past information and hence is still NOT able to take into account the occurrence that would impact the markets such as; acts of god, geopolitical risks, terrorist attacks, economic data releases or unpredictable complexities of any sort. It is a hot topic especially in online forums as it still remains questionable on how effective moving averages are for accurately indicating price action.
2. Relative Strength Index (RSI)
The RSI is categorised as an Oscillator which is most commonly used to scan the markets for divergences. When using the RSI to indicate ‘divergence’ as a sign of waning of momentum, traders should be extremely cautious because it does not necessarily signify new momentum in the opposite direction. Wilder wrote in his book (1978) that “the Index will usually top out or bottom out before the actual market top or bottom, giving an indication that a reversal or at least a significant reaction is imminent.”
3. MACD
MACD was originally created to indicate changes in the strength, direction, momentum, and duration of a trend mainly in stock's price. When it comes to the biggest Financial market of the world, which is Forex, then the original functionality may need some tweaking and may not be giving the same results as a Stocks trader would be getting from applying it. The other problem is that traders lack the knowledge or education on how to differentiate between a Trending market or Ranging market.
Conclusion
Technical analysis is one of the oldest trading concepts and it has become far more advanced with the coming of latest trading tools including smarter and more user friendly technical indicators too. However, despite the arrival of a barrage of new indicators yearly, the core assumptions of technical analysis does still remain intact, these are made of the following; history tends to repeat itself, price of financial instruments always move in trends and that the market discounts everything.
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Editors’ Picks
EUR/USD hits two-day highs near 1.1820
EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.
GBP/USD reclaims 1.3600 and above
GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.
USD/JPY drops back below 157.00, as focus shifts to Japan snap election
USD/JPY is back in the red below 157.00 in the Asian session on Friday. The Japanese Yen recovers ground against the US Dollar amid some profit-taking ahead of Japan's snap general election on Sunday. The preliminary reading of the Michigan Consumer Sentiment Index report for February will be released later on Friday.
Editors’ Picks
EUR/USD: US Dollar to remain pressured until uncertainty fog dissipates Premium
The EUR/USD pair lost additional ground in the first week of February, settling at around 1.1820. The reversal lost momentum after the pair peaked at 1.2082 in January, its highest since mid-2021.
Gold: Volatility persists in commodity space Premium
After losing more than 8% to end the previous week, Gold (XAU/USD) remained under heavy selling pressure on Monday and dropped toward $4,400. Although XAU/USD staged a decisive rebound afterward, it failed to stabilize above $5,000.
GBP/USD: Pound Sterling tests key support ahead of a big week Premium
The Pound Sterling (GBP) changed course against the US Dollar (USD), with GBP/USD giving up nearly 200 pips in a dramatic correction.
Bitcoin: The worst may be behind us
Bitcoin (BTC) price recovers slightly, trading at $65,000 at the time of writing on Friday, after reaching a low of $60,000 during the early Asian trading session. The Crypto King remained under pressure so far this week, posting three consecutive weeks of losses exceeding 30%.
Three scenarios for Japanese Yen ahead of snap election Premium
The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.
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